Now that the "low-cost" airline has successfully crippled the "national flag carrier", it does look like the small fly may eat the big bug, in small snatches.
Introducing the low cost airline cannot be to "increase competition" of the Malaysian aviation industry. You have two totally different products: one "full cost" and the other "low cost". In no way should "full cost" be thought of as "high cost" and "low cost" to be "better value". It is just the way the competitor has cleverly maneuvered itself into the public psyche that created this perception. If pricing is cost-plus, then one should be getting probably almost the same value for the services rendered.
As a corollary, it is also true that "low cost" means "low price" (which the airline is now trying to reposition itself) but not necessarily "better value." The apparent disgust that the low cost operator treats its customers must be something that the average consumer must constantly deal with which in more technical parlance means the loss of consumer rights. It is OK for the operator not to deliver as promised, but woe betide the consumer who happens to try to alter a little bit of the contract. It is this lopsidedness that is the peculiar feature of the "business model" of the low cost flyer, and not its much touted greater "operational efficiency". If you set a computer system to deal with customers who have not way to communicate back to the system, and if you program the computer system to generate a certain amount of profit from every customer, then obviously you are going to get that profit as programmed. Once the "parameters" change, as we see the low cost flyer pulling out of Europe, then you know that it is out of its depth to cope with a more challenging environment.
It is not rocket science to know that to get the average price down, every flight must operate at a certain high capacity. It is this targeting that we see to be promotional strategy of the low cost flyer, as well as the constant attempt to juggle flights in order to pack passengers into a certain targeted "high capacity" which is otherwise termed as operational efficiency.
The national carrier becomes disoriented when the low cost flyer enters the story. How does one compete with a "low cost" competitor? This is the wrong question. The correct response is how to redefine the full-cost market now that the competitor is going to soak up all the cheap customers. It is not surprising if the first impact the national carrier feels is that more than half of its customers are all gone. If we work on the simple Pareto rule of 20% business class and 80% economy class and if the normal capacity on the economy class is 60% and if half of the 80% is lost to the competitor, then you have a mix of 20% business class and 20% economy class. It is instant death to the national carrier.
The objective of the national carrier must be to concentrate on how to get back its economy class passengers. By imitating the competitor in its treatment of customers, the national carrier takes the risk of alienating itself from its customer base. Its computer system is not geared to dealing with online booking and changes to online booking. It simply does not know how to handling this cut-throat business of low price. Instead, the national carrier should build up a new market for traditional full-service flying and at the same time overhaul its operating system to lower cost by automating more of its internal operations. Instead, the national carrier tries to become a low cost flyer and in the process simply cannot compete as the low cost competitor is king in the business of low cost flying. It automates all its external communications with the customers, an area where the old method should have given it an edge. The national carrier has fallen into a trap, all on its own doing.
At the end of the day, probably one of the most vital factors that determines which airline survives in this globally competitive business is its management of its cost of fuel - supposedly a major cost element. If this is set right, all the other costs are small in comparison. If the fuel cost is too high, then it has to weather it. The low cost flyer simply pass this down to the average consumer in the form of a "fuel surcharge" which really is one of the most appalling abuses of consumers in the market place. Unable to get a team to get its fuel cost right, the response to saving the national carrier is to send in a marketing and accounting team to manage the accounts, and probably not the operations. The operations can only deteriorate with neglect.
So how does one then "rationalise" the national carrier with the low cost flyer? It is as if the low cost flyer has business class travellers to bring to the table, while it will certainly try to soak up the remaining of the economy class passengers from the national carrier. There is also room for further cannibalism by the small of the big. What other experience and expertise does one have that the other does not have.
The Malaysian airline business may just be one episode that shows the general fragility of the national economic fabric. There is a lot of communications and clever talk, but all those who could do are sidelined and relegated to the dungeon to work in the galley to keep the ship going.
Thursday, April 26, 2012
Wednesday, April 25, 2012
Japan: High-Income Economy
Just got back from Japan and here are some of my observations.
Before this trip, I had dropped into Japan several times on quick dips and transit simply because it was very expensive. With the strengthening of the yen, thanks, I think, to the Plaza Accord of 1985 when the US forced Japan to revalue by a third, Japan has been forced into a downward spiral. The reduced growth of the economy was then bolstered by an expansionary monetary policy ("quantitative measure") that caused the asset bubble in the 1990s and the subsequent asset deflation which is still happening. That revaluation and the asset bubble made Japan so expensive today - for Malaysians (!) who also have to be content with a depressed ringgit.
Japan today, to my eyes, has become a developed nation after years of hard work and economic growth since the end of World War II. Factories are everywhere in the smaller cities and towns. The transportation system all working perfectly and well-interlinked. The people putting their heads down, working and coming and going to work. There is that busyness which lay below the headline of a slow and anemic growth for the Japanese economy. Japan has reached the saturation of its heavy industrialisation. There is so much pollution that can be generated.
On the ground, the Japan society seems to have reached its zenith. Roads are perfectly clean and tidy, houses tidy and cute swarmed along both sides, people ever so polite and socially conscious, the traditional food perfectly healthy and well-proportioned and identically well presented everywhere - the social system working like a clock and the people simply moving along this huge conveyor belt system.
But this is a system and utopia created by the post-war heroes of Japan which are now happily enriched with their cosy little houses and the comfortably big pensions. These old people are the ones who are now challenging themselves to live long so that they can maximise the benefits of the pensions. That longevity is now being obtained through strenuous hard work of brisk working, exercising and working on projects in order to keep the mind alert. Everywhere in Japan, you see old people who are well-dressed and well-kept.
The new children who are being produced in Japan today now has to face a situation where there are no more jobs in the industrial sector. They walk by factories and feel no affinity to them. Factories have no meaning to the young people, except fatherly neglect and a lonely mother. Against the industrial perfection of Japan comes the counter-cultural revolution at the other extreme of the arts. The children all dressed untraditional in order to disgust their parents, and probably as they do that for a few more years, to find themselves. It is this undercurrent of the young generation on the search for their own soul which is exciting for me because it will represents the saviour of the Japanese society and economy.
Japan has been, so far, known for its mechanical perfection but not its innovation or inventiveness. We may now be witnessing Japan at the inflexion point. As the Japanese society rebels against tradition and structure, it learns to think for itself. By looking inward, Japan will discover a new self which we have not seen yet. This may be time for Japan to leave the stereotype that the whole world knows, and to have the confidence to reveal a new self which will incorporate the simplicity of its forbears but the new outlook of life which is better integrated with the rest of the world. This is the excitement I found when I visited Japan recently.
Before this trip, I had dropped into Japan several times on quick dips and transit simply because it was very expensive. With the strengthening of the yen, thanks, I think, to the Plaza Accord of 1985 when the US forced Japan to revalue by a third, Japan has been forced into a downward spiral. The reduced growth of the economy was then bolstered by an expansionary monetary policy ("quantitative measure") that caused the asset bubble in the 1990s and the subsequent asset deflation which is still happening. That revaluation and the asset bubble made Japan so expensive today - for Malaysians (!) who also have to be content with a depressed ringgit.
Japan today, to my eyes, has become a developed nation after years of hard work and economic growth since the end of World War II. Factories are everywhere in the smaller cities and towns. The transportation system all working perfectly and well-interlinked. The people putting their heads down, working and coming and going to work. There is that busyness which lay below the headline of a slow and anemic growth for the Japanese economy. Japan has reached the saturation of its heavy industrialisation. There is so much pollution that can be generated.
On the ground, the Japan society seems to have reached its zenith. Roads are perfectly clean and tidy, houses tidy and cute swarmed along both sides, people ever so polite and socially conscious, the traditional food perfectly healthy and well-proportioned and identically well presented everywhere - the social system working like a clock and the people simply moving along this huge conveyor belt system.
But this is a system and utopia created by the post-war heroes of Japan which are now happily enriched with their cosy little houses and the comfortably big pensions. These old people are the ones who are now challenging themselves to live long so that they can maximise the benefits of the pensions. That longevity is now being obtained through strenuous hard work of brisk working, exercising and working on projects in order to keep the mind alert. Everywhere in Japan, you see old people who are well-dressed and well-kept.
The new children who are being produced in Japan today now has to face a situation where there are no more jobs in the industrial sector. They walk by factories and feel no affinity to them. Factories have no meaning to the young people, except fatherly neglect and a lonely mother. Against the industrial perfection of Japan comes the counter-cultural revolution at the other extreme of the arts. The children all dressed untraditional in order to disgust their parents, and probably as they do that for a few more years, to find themselves. It is this undercurrent of the young generation on the search for their own soul which is exciting for me because it will represents the saviour of the Japanese society and economy.
Japan has been, so far, known for its mechanical perfection but not its innovation or inventiveness. We may now be witnessing Japan at the inflexion point. As the Japanese society rebels against tradition and structure, it learns to think for itself. By looking inward, Japan will discover a new self which we have not seen yet. This may be time for Japan to leave the stereotype that the whole world knows, and to have the confidence to reveal a new self which will incorporate the simplicity of its forbears but the new outlook of life which is better integrated with the rest of the world. This is the excitement I found when I visited Japan recently.
Monday, February 20, 2012
New Year 2012
My apologies for the long absence. Various reasons. Two-month lab. Year-end holidays. Lots of work to catch up, just as everybody is busy trying to stay in the job and in business.
The demise of Whitney Houston is sad.
Would there be nice things for us to think about and discuss in the coming new year. So, should we be trying to add more salt to the rotten stuff.
Until some nice thoughts crop up, I am sorry that that I shall rather be drinking my beer, sipping my coffee, dipping into the books that I have lined up to read and the music database that I have to organise into a decent system.
The euro is going to break. China is struggling to rise again like an injury hero determined to show. US is brain-dead, chiding the Middle East. Japan is an old man. S Korea looks interestingly alive. Indonesia is rediscovering itself. Malaysia tries hard, unbelievably hard. Singapore refuses to succumb.
We'll see how the year will fare.
The demise of Whitney Houston is sad.
Would there be nice things for us to think about and discuss in the coming new year. So, should we be trying to add more salt to the rotten stuff.
Until some nice thoughts crop up, I am sorry that that I shall rather be drinking my beer, sipping my coffee, dipping into the books that I have lined up to read and the music database that I have to organise into a decent system.
The euro is going to break. China is struggling to rise again like an injury hero determined to show. US is brain-dead, chiding the Middle East. Japan is an old man. S Korea looks interestingly alive. Indonesia is rediscovering itself. Malaysia tries hard, unbelievably hard. Singapore refuses to succumb.
We'll see how the year will fare.
Wednesday, December 14, 2011
The End of the Year (2011)
The end of the year is nothing but an idea
That time has an end and we should all be looking
Forward to it so that we can have a new beginning
Because the old year has been such a mess
And we hope that things will be different
When we symbolically throw away old things
That new things and new ideas will be better
Just simply because we merely want a change
Even if that change is nothing but the same old thing
As we hold on dearly to our same old habits
And feel comforted in our old familiar surroundings
Only our mind may have become a bit different
Now that we have made new mistakes this past year
And surely we will have become wiser in the new year
By not repeating the old mistakes but creating new ones
And so, the newness of our life is nothing but the same
That somehow has acquired a new beginning
But with the same old ending.
Alas! Accept.
That time has an end and we should all be looking
Forward to it so that we can have a new beginning
Because the old year has been such a mess
And we hope that things will be different
When we symbolically throw away old things
That new things and new ideas will be better
Just simply because we merely want a change
Even if that change is nothing but the same old thing
As we hold on dearly to our same old habits
And feel comforted in our old familiar surroundings
Only our mind may have become a bit different
Now that we have made new mistakes this past year
And surely we will have become wiser in the new year
By not repeating the old mistakes but creating new ones
And so, the newness of our life is nothing but the same
That somehow has acquired a new beginning
But with the same old ending.
Alas! Accept.
Sunday, November 13, 2011
The End Of The World?
Recent events around the world, as presented to us by television and the mass media, would give one the impression that the end of the world is near. How near?
Certainly the world ended for the many innocent and not so innocent killed in the Middle East thanks to the US and other military operations as well as by desperate attempts by despots to protect their little pots of honey. The end of the world seems to be closing in on some regimes are deemed to be totalitarian by their people. The best of luck to the despots and the people.
In Europe, the totalitarian of the euro as a single currency seems also to be at the brink of cracking with Germany and France desperately trying to shore up the broken finances of Greece and Italy. That's what you get when you have a lousy civil service that is not only bloated and not doing nothing but doing everything possible to stop the rest of the society from getting ahead. France is the next in line for exposure to sloppy financial behaviour although some say that it's troubles are tied to exposure to Greece and Italy, which is the same thing as bad behaviour isn't it.
I am quite taken by Obama poniticating about the problems of the world without mentioning the problems of the US itself which the American people having enjoyed and now suffering from years or decades of consuming the output of the world paid for by simply printing paper money. This is sheer abuse of its global leadership in monetary policy. I have said it before: Volcker did an excellent job, Greenspan abused it, thereby passing the global finacial baton to China bypassing Europe.
China, onced it has learned financial discipline and controlled domestic inflation, will go for domestic consumption by raising local wages and local agriculture prices and hence to sustainable prosperity through endogenous growth with imports for raw materials from the rest of the world, competing for natural resources around the world for its own internal consumption. Then, it enters an era of bloated Chinese.
Certainly the world ended for the many innocent and not so innocent killed in the Middle East thanks to the US and other military operations as well as by desperate attempts by despots to protect their little pots of honey. The end of the world seems to be closing in on some regimes are deemed to be totalitarian by their people. The best of luck to the despots and the people.
In Europe, the totalitarian of the euro as a single currency seems also to be at the brink of cracking with Germany and France desperately trying to shore up the broken finances of Greece and Italy. That's what you get when you have a lousy civil service that is not only bloated and not doing nothing but doing everything possible to stop the rest of the society from getting ahead. France is the next in line for exposure to sloppy financial behaviour although some say that it's troubles are tied to exposure to Greece and Italy, which is the same thing as bad behaviour isn't it.
I am quite taken by Obama poniticating about the problems of the world without mentioning the problems of the US itself which the American people having enjoyed and now suffering from years or decades of consuming the output of the world paid for by simply printing paper money. This is sheer abuse of its global leadership in monetary policy. I have said it before: Volcker did an excellent job, Greenspan abused it, thereby passing the global finacial baton to China bypassing Europe.
China, onced it has learned financial discipline and controlled domestic inflation, will go for domestic consumption by raising local wages and local agriculture prices and hence to sustainable prosperity through endogenous growth with imports for raw materials from the rest of the world, competing for natural resources around the world for its own internal consumption. Then, it enters an era of bloated Chinese.
Monday, August 8, 2011
Double Dip Or Fallout
It is sad that this has to happen but it has been obvious for a long time - that the structural break of the US economy is now firmly evidenced by the inability of monetary expansion to paper over. We should now expect deflation in the US as it has been in Japan since the early 1990s.
We cannot be thinking about marginal adjustments in the global economy. It is not as if the US economy is still structurally sound and that a sharp depreciation of the US dollar will correct its external imbalance which it doesn't have much relatively. With the rise of China (and India), the US (and Japan) collapses. Germany may hold, but the Euro may break.
The rise of China not only took away manufacturing jobs from the world, but competes with the rest of the world for food and resources. That a billion of Chinese now chooses not to go hungry means food production must rise by 1/6th or a billion people outside China must starve.
Central banks must reduce monetary expansion and direct the new expansion towards food production and away from real estate, stock purchases and credit cards.
Deflation is a needed adjustment after the sustained monetary expansion. This could put more people into productive work to increase output (especially food). This alternative has been viewed negatively as a rise in unemployment which is true in technically unprepared societies.
We cannot be thinking about marginal adjustments in the global economy. It is not as if the US economy is still structurally sound and that a sharp depreciation of the US dollar will correct its external imbalance which it doesn't have much relatively. With the rise of China (and India), the US (and Japan) collapses. Germany may hold, but the Euro may break.
The rise of China not only took away manufacturing jobs from the world, but competes with the rest of the world for food and resources. That a billion of Chinese now chooses not to go hungry means food production must rise by 1/6th or a billion people outside China must starve.
Central banks must reduce monetary expansion and direct the new expansion towards food production and away from real estate, stock purchases and credit cards.
Deflation is a needed adjustment after the sustained monetary expansion. This could put more people into productive work to increase output (especially food). This alternative has been viewed negatively as a rise in unemployment which is true in technically unprepared societies.
Monday, July 11, 2011
The Struggle For Power
It is quite interesting to observe how the struggle for power -potentially absolute power - can lead to very desperate acts.
We imagine that the struggle for political power - for Malaysia, and recently for South Sudan (congratulations!) - is made for the purpose of independence - to define one's own destiny - as opposed to be abused as an agent for someone's benefit which therefore all points to a common good that the people of a society can nurture for itself.
The greatness of George Orwell in his Animal Farm is how the objective of the struggle can metamorphosise from high level to more degraded levels. In South Sudan, we are hearing worries over tribal warfare and potentially huge economic survival issues at all levels. In Malaysia, we have descended from an inspired greater commonwealth to one of sectarianism. We have not done ourselves justice.
We thought we started with a fairly good institutional structure of checks and balances, but with a very big loophole in the shape of the Internal Security Act which allows the authorities to detain people without trial for 60 days plus 2 years - which unfortunately has been abused to kill dissent. As a result, the inherited institutional structure devolved into a lopsided one with the power accumulated in the hands of the very top. The question now becomes: How can this concentrated power be opposed or even disposed?
It is interesting to note that with the concentration of political power comes the concentration of economic power. "I say this is mine" and it is his or hers. This phenomenon is being justified as the building up of the war chests of political parties, which invariably is the war chest of the political party of the incumbent government and, by extension, of the few individuals who control everything. With that sense of power, it is extremely difficult to dream of fair play and a more balanced approach to how things can turn out in the future for our country and our people. Thoughts are likely to be focused on "how I can siphon the money out without being caught." (Those caught would be considered stupid and ostracized in order not to damage the whole branch.)
When things come to an extreme, how do we proceed as a country? We can continue to let the system squeeze the juice out of the economy and the strength of the people, inviting inflation to redistribute wealth from the very poor to the very rich through "rapid growth of the money supply and loans at low interest rates." This has been going on. "It is not our fault - it is imported global inflation, crop failures in other parts of the world." The nation stares and justifies as a bystander to this global drama.
There are those who figure that they may be able to provide a change - a breath of fresh air, so to speak. The great beauty of democracy is that everybody has a chance to try their hands at governing the nation. How can one claim to know more than another, except through long years of dictatorship which the modern world is trying to do away with. The answer is really to limit the term of tenure so that ideas do get rotated. Do not believe in dictators however benevolent they are making themselves to be - the world can always be a better place without them.
With flexibility and adaptability and room for change and hopefully improvement, the nation and society can evolve and adjust into an animal that is the product of no one person's mind but that of the facets of many people's views - rightly or wrongly. This is where the storytelling comes in for the nation. This is where the wise men and women and sages and prophets come in to guide the people towards redemption. Lest, we are all caught in the quagmire of our own conceit.
There is no mystery to why private investments here have tanked. It spells how much confidence we have in ourselves. We have abused ourselves, our own people, we have spit at each other. We do this because we still have the luxury of past wealth which is slowly being eroded by mismanagement. We are being arrogant.
The path out of this darkness is the light of trust and cooperation, of exerting our selves and making efforts to serve our neighbours by providing them with goods and services in return for what they can provide for what we need. Whether we should persist in what we are doing depends on the vote of society in the exercise of their right to decide what they want to want and do not want. It is the freedom of choice. It is the demonstration of revealed preference.
We imagine that the struggle for political power - for Malaysia, and recently for South Sudan (congratulations!) - is made for the purpose of independence - to define one's own destiny - as opposed to be abused as an agent for someone's benefit which therefore all points to a common good that the people of a society can nurture for itself.
The greatness of George Orwell in his Animal Farm is how the objective of the struggle can metamorphosise from high level to more degraded levels. In South Sudan, we are hearing worries over tribal warfare and potentially huge economic survival issues at all levels. In Malaysia, we have descended from an inspired greater commonwealth to one of sectarianism. We have not done ourselves justice.
We thought we started with a fairly good institutional structure of checks and balances, but with a very big loophole in the shape of the Internal Security Act which allows the authorities to detain people without trial for 60 days plus 2 years - which unfortunately has been abused to kill dissent. As a result, the inherited institutional structure devolved into a lopsided one with the power accumulated in the hands of the very top. The question now becomes: How can this concentrated power be opposed or even disposed?
It is interesting to note that with the concentration of political power comes the concentration of economic power. "I say this is mine" and it is his or hers. This phenomenon is being justified as the building up of the war chests of political parties, which invariably is the war chest of the political party of the incumbent government and, by extension, of the few individuals who control everything. With that sense of power, it is extremely difficult to dream of fair play and a more balanced approach to how things can turn out in the future for our country and our people. Thoughts are likely to be focused on "how I can siphon the money out without being caught." (Those caught would be considered stupid and ostracized in order not to damage the whole branch.)
When things come to an extreme, how do we proceed as a country? We can continue to let the system squeeze the juice out of the economy and the strength of the people, inviting inflation to redistribute wealth from the very poor to the very rich through "rapid growth of the money supply and loans at low interest rates." This has been going on. "It is not our fault - it is imported global inflation, crop failures in other parts of the world." The nation stares and justifies as a bystander to this global drama.
There are those who figure that they may be able to provide a change - a breath of fresh air, so to speak. The great beauty of democracy is that everybody has a chance to try their hands at governing the nation. How can one claim to know more than another, except through long years of dictatorship which the modern world is trying to do away with. The answer is really to limit the term of tenure so that ideas do get rotated. Do not believe in dictators however benevolent they are making themselves to be - the world can always be a better place without them.
With flexibility and adaptability and room for change and hopefully improvement, the nation and society can evolve and adjust into an animal that is the product of no one person's mind but that of the facets of many people's views - rightly or wrongly. This is where the storytelling comes in for the nation. This is where the wise men and women and sages and prophets come in to guide the people towards redemption. Lest, we are all caught in the quagmire of our own conceit.
There is no mystery to why private investments here have tanked. It spells how much confidence we have in ourselves. We have abused ourselves, our own people, we have spit at each other. We do this because we still have the luxury of past wealth which is slowly being eroded by mismanagement. We are being arrogant.
The path out of this darkness is the light of trust and cooperation, of exerting our selves and making efforts to serve our neighbours by providing them with goods and services in return for what they can provide for what we need. Whether we should persist in what we are doing depends on the vote of society in the exercise of their right to decide what they want to want and do not want. It is the freedom of choice. It is the demonstration of revealed preference.
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